One form of electronic funds transfer (“EFT”) currently used domestically is known as direct payment (or direct deposit) instruments. A direct payment instrument is an electronically transmitted instruction to credit or debit a particular account. For example, a company can use direct payment to credit the accounts of its employees, customers, vendors, and beneficiaries. Direct payment instruments are becoming increasingly popular as conventional payment methods, such as checks, decrease in popularity. Because the transaction is performed electronically, direct payment instruments offer convenience and reliability. The electronic system that supports direct payment instruments in the United States is referred to as the Automated Clearing House (“ACH”). The ACH is a payments network that uses a batch processing, store-and-forward method for transfer of payment information. The payment information in an ACH transaction or item is an instruction to debit or credit a receiver's account. Receivers may be corporate entities or consumers. For example, a company can use an ACH payment to credit the accounts of its employees, customers, vendors, and beneficiaries. Use of the ACH network has grown significantly in the past few years as more corporations and consumers choose electronic alternatives for their transactions. The ACH provides a consistent and reliable payment alternative.
The ACH is a nationwide system supported by depository financial institutions and ACH operators, including the Federal Reserve Banks. The ACH network is governed by a set of rules administered by the National Automated Clearing House Association (“NACHA”). The ACH network provides clearing of generally small value, recurring, and one-time payments among banks that participate in the ACH network. Financial institutions collect transactions and package them in batched ACH files according to the NACHA rules for forwarding to other institutions via the ACH network.
ACH offers financial institutions, companies, consumers, and others an efficient, alternative to paper based payment methods. Throughout this specification, any reference to the term “company” is intended to be representative of the originator or receiver of electronic ACH payments and does not imply exclusion of other types of organizations or individuals. Transaction items are created by an originator and are delivered in batches to an originating depository financial institution (“ODFI”). The ODFI will transmit these batches in an ACH file to the ACH operator through its sending point. The ODFI may act as its own sending point, or it may contract with a third party or “remote” sending point, to electronically transmit the information in a file to an ACH operator. This third party or “remote” sending point may be a depository financial institution or a company providing processing services for depository financial institutions. The ACH operator can comprise the Federal Reserve Banks or another operator.
The file comprises batches, and each batch comprises one or more ACH transaction items pertaining to one originator and payment type. ACH transaction items are individual electronic debit payments or credit payments formatted to meet NACHA standards. Once received by the ACH operator, the transaction items are sorted, batched, and assembled in a file for delivery to a receiving depository financial institution (“RDFI”). The RDFI may act as its own receiving point, or it may contract with a third party, to electronically receive a file from the ACH operator. This third party may be a depository financial institution or a company providing processing services for depository financial institutions. The ACH operator may provide ACH accounting information in a machine-readable format to facilitate the automation of accounting information for participating DFIs.
The following provides definitions of the ACH system participants:
(1) ACH Operator: The Federal Reserve Banks or another operator which receives transaction items from an ODFI through its sending point, distributes the items to appropriate RDFIs or their third party receiving point(s), and can perform the settlement functions (crediting and debiting of accounts) for the affected financial institutions. In some cases, ACH operators may not perform the settlement function.
(2) Originator: A person or organization that agrees to initiate ACH entries into the payments system according to an arrangement with a receiver. The originator is usually a company that originates an ACH item to a consumer's account or another company's account. The originator is responsible for obtaining and retaining any required authorization from the receiver.
(3) Originating Depository Financial Institution (“ODFI”): A financial institution that receives the payment instructions from originators and forwards the items to the ACH operator.
(4) Receiver: A person or organization that has authorized an originator to initiate an ACH entry to the receiver's account at its RDFI.
(5) Receiving Depository Financial Institution (“RDFI”): A financial institution that receives ACH transactions from the ACH operator and posts them to the accounts of its customers (receivers).
(6) Receiving Point: The point to which files from the ACH operator are delivered for the RDFI. An RDFI may designate itself or another entity as the receiving point.
(7) Sending Point: The actual point from which a file is deposited with the ACH operator for the ODFI. The ODFI may designate itself or another entity as its sending point. The ODFI may have multiple sending points.
The following provides a description of the anatomy of a representative ACH file. ACH files comprise groups of ACH items in batches that must be in a specific sequence or the ACH operator will not process the file. Each ACH file has one file header, which primarily comprises immediate origin and destination information. Fields in the file header include the local ACH operator routing number, sending point or receiving point routing number, file date, file time, record block, destination name of the ACH operator, and origin name (the sending point or receiving point name).
Each batch comprises one or more similar ACH items and contains a batch header record that identifies the originator and the purpose of the entry and a batch control record that contains a count of the preceding entries. ACH files can comprise more than one batch. Depending on who creates the batch, either the ODFI or the originator will enter the data in the batch header. Fields in the batch header comprise the ODFI routing number, company name, company entry description (which prints on the customer statement), originator identification, batch number, effective entry date, and standard entry class code.
Each ACH batch also comprises a batch control record that announces the end of a batch. The batch control record comprises totals for the batch, such as number of items (payments), total dollar amounts, and a summation (algorithm) of the RDFI identification. Each batch must have a control record before another batch can begin. Throughout this specification, reference to a batch header can comprise information from a batch control record.
Each ACH item comprises an item detail record. The number of ACH items per ACH batch can be up to 999,999. Fields in the item detail record comprise the dollar amount, the receiver's RDFI account number and name, the transaction code for the receiver's type of account, trace number, and RDFI routing number. Each item detail record must be constructed in accordance with the NACHA record layout according to the Standard Entry Class Code of the batch.
Each ACH file also comprises a file control record at the end of the last batch in the ACH file. The file control record announces the end of the file and includes a summary of all of the batch control records. Throughout this specification, reference to a file header can comprise information from a file control record.
Each file header identifies the immediate origin (sending point or ACH operator) and destination (receiving point or ACH operator). A file may comprise batches and items for one or more ODFIs. A file can comprise items for numerous RDFIs. Typically, each batch comprises only one company's items. Input batches, which are being sent to the ACH operator by the ODFI, can comprise items for multiple RDFIs. Output batches, which are coming from the ACH operator, comprise items for only one RDFI.
A remote sending point can submit ACH payments to the ACH operator using an ODFI-owned routing number (“RTN”) or through a remote connection using an electronic transaction identifier (“ETI”). An ETI is analogous to an RTN but designed for use by other than depository financial institutions. The submission on behalf of an ODFI presents a risk to the ODFI because the ODFI is responsible for the payments presented on its behalf.
Two examples of a remote sending point are a third party direct depositor (alternatively, a third party processor) and a remote originator. An ODFI may authorize a third party direct depositor to process all or a portion of the depository financial institution's ACH transactions on its behalf. That third party direct depositor then originates ACH credit and debit payments directly to the ACH operator on behalf of the ODFI. However, conventional ACH operator processing systems do not allow the ODFI to monitor and control the ACH payments originated on its behalf by a third party direct depositor. Accordingly, ODFIs desire to limit those transactions and to maintain control over the third party direct depositor.
A depository financial institution also may authorize a customer, such as an account holder, to originate ACH payments directly to the ACH operator. A customer with that authorization is a remote originator. For example, a depository financial institution can authorize a customer to originate ACH payments for the customer's payroll each month. The customer originates ACH credit payments to debit the customer's account at the depository financial institution and to credit the customer's employees' accounts. The customer forwards the originated ACH payments to the ODFI, which forwards the originated payments to the ACH operator for processing and, in some cases, settlement processing. The ODFI may not review the originated payments prior to forwarding those payments to the ACH operator. Conventional ACH operator processing systems do not allow the ODFI to monitor and control the ACH payments after receipt by the ACH operator. Accordingly, the depository financial institution needs to limit and control those payments to prevent the customer from overdrawing its account.
Furthermore, an ODFI currently cannot control ACH operator processing of payments originated by a remote sending point and sent to the ACH operator on behalf of the ODFI. For example, if a remote sending point fraudulently originates ACH payments and sends those payments to the ACH operator on behalf of the ODFI, the ODFI may not receive notice of those payments until the ACH operator has processed those payments and presents those payments to the ODFI for settlement. The ODFI cannot prevent processing and presentment of those payments by the ACH operator. Alternatively, an ODFI may revoke a remote sending point's authority to originate payments and to send those payments to the ACH operator on behalf of the ODFI. As with the fraudulently originated payments, the ODFI may not receive notice of the payments until the ACH operator has processed those payments and presents those payments to the ODFI for settlement, and the ODFI cannot prevent processing and presentment of those payments by the ACH operator.
Accordingly, a need exists in the art for allowing an ODFI to control ACH operator processing and presentment of ACH payments originated by a remote sending point and sent to the ACH operator on behalf of the ODFI. Particularly, a need exists in the art for determining whether an ODFI has approved ACH payments originated by a remote sending point and sent to the ACH operator on behalf of the ODFI. A further need exists in the art for making that determination prior to processing of the ACH payments by the ACH operator, whereby the ACH operator can reject the payments if the ODFI did not approve the payments.